Capital Markets Presentation Kitron Group | 2020.03.18 1
Disclaimer This presentation contains certain forward-looking information and statements. Such forward-looking information and statements are based on the current, estimates and projections of the Company or assumptions based on information currently available to the Company. Such forward-looking information and statements reflect current views with respect to future events and are subject to risks, uncertainties and assumptions. The Company cannot give assurance to the correctness of such information and statements. These forward-looking information and statements can generally be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use terminology such as “targets”, “believes”, “expects”, “aims”, “assumes”, “intends”, “plans”, “seeks”, “will”, “ may ”, “anticipates”, “would”, “could”, “continues”, “estimate”, “milestone” or other words of similar meaning and similar expressions or the negat ives thereof. By their nature, forward-looking information and statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements that may be expressed or implied by the forward-looking information and statements in this presentation. Should one or more of these risks or uncertainties materialize, or should any underlying assumptions prove to be incorrect, the Company's actual financial condition or results of operations could differ materially from that or those described herein as anticipated, believed, estimated or expected. Any forward-looking information or statements in this presentation speak only as at the date of this presentation. Except as required by the Oslo Stock Exchange rules or applicable law, the Company does not intend, and expressly disclaims any obligation or undertaking, to publicly update, correct or revise any of the information included in this presentation, including forward-looking information and statements, whether to reflect changes in the Company's expectations with regard thereto or as a result of new information, future events, changes in conditions, currency development or circumstances or otherwise on which any statement in this presentation is based. Given the aforementioned uncertainties, prospective investors are cautioned not to place undue reliance on any of these forward-looking statements. 2
AGENDA Strategy Market & Operations Financials Covid-19 Summary Peter Nilsson Israel Losada Salvador Cathrin Nylander 3 President & CEO COO and Sales Director CFO
Strategy 4
The essence of Kitron Kitron is a leading Scandinavian Electronics Manufacturing Services company, delivering improved flexibility, cost efficiency, and innovation power throughout the value chain. 5
Complex, high-margin products, medium volumes Margin/complexity Local niche providers High-volume, low-margin providers Volume 6
Kitron on three continents 7 7
Strategic Horizon towards 2025 2015 2020 2025 Significant Refining changes Overall strategy: Complex, high-margin products, medium volumes Growth Operations M&A ▪ Value chain expansion ▪ Growth, existing customers ▪ Capacity expansion ▪ Entering new geographies ▪ Growth, new customers ▪ Operational excellence ▪ Existing geographies ▪ Technical services sales ▪ Competence roadmap ▪ Digitalization ▪ Technical roadmap 8 8 8
Growth and margin improvement on track towards 2025 targets Organic growth target 2020 of NOK 3 000 million achieved in 2019 EBIT margin 7,0 % Revenue 5 000 6,1 % 3 299 Organic 2020 target 1 632 1,5 % 2013 2014 2015 2016 2017 2018 2019 2020 2025 2013 2014 2015 2016 2017 2018 2019 2020 2025 2020 guidance Revenue NOK 3 300 to 3 700 million EBIT margin 6.4% to 7.0% 9 9
Main financial ambitions 2020 2025 ▪ Revenue NOK 3.3 – 3.7 billion ▪ Revenue NOK 5 billion ▪ EBIT margin 6.4% – 7.0% ▪ M&A adding upside ▪ ROOC 20 – 25% ▪ EBIT margin 7% ▪ ROOC 25% 10 10
Market
The European EMS Industry ▪ A few big players, long tail of small, local firms Sales from each Number of group (Euro Billions) Companies ▪ Ongoing consolidation o Within Europe Group 1 12 €16.4 B Global o Chinese entrants Group 2 ▪ Entry barriers driven by defence, 25 €5.5 B Multinational aerospace and medical, €100 -500m spreading to other sectors Group 3 49 €2.9 B Sub-Regional o Cyber security €20 -100m o Contingency planning Group 4 +1250 €7.6 B National €10 -40m Large market, no meaningful restriction for Kitron. + 1300 Total sales € 32.4 B Source: Reed Electronics Research: The EMEA Electronic 12 Manufacturing Services Industry 2018-2023
Customers and market sectors INDUSTRY ENERGY/TELECOMS DEFENCE/AEROSPACE OFFSHORE/MARINE MEDICAL DEVICES 13 13
Three growth opportunities for Kitron Long-term Broad-based Internet of Things outsourcing trend move to drives product continues electrification connectivity 14
Operations
Modern, highly automated facilities with advanced certifications 2019 ▪ ▪ ▪ Feb-19 - Completed the Jun-19 - Doubled the size Oct-19 – Started operating acquisition of API of our plant in Ningbo – new facility in Grudziadz – Technologies in Windber China. 4,300 sqm Poland. 8,500 sqm (PA) – USA. 10,000 sqm 16
M&A Ongoing industry consolidation creates M&A opportunities ▪ Actively evaluating opportunities ▪ Revenue range €10– 100 million ▪ Must see potential for same profitability as rest of group ▪ But time lag while optimizing to be expected ▪ Transactions most likely financed through Existing geography New geography combination of own cash and debt Existing value chain More likely Most likely Value chain expansion Likely Not likely M&A may add upside to 2025 revenues 17
Financials
Growth beyond 2020: “5 in 25” 2020 5000 Revenue ▪ 2020 Organic growth target of NOK 3 billion achieved in 2019 ▪ Revenue growth continues according to strategy 3299 Organic 2020 target 2025 ▪ 1632 Organic ambition: NOK 5 billion ▪ Annual organic trend growth 2020 – 2025: approximately 10% ▪ M&A adds potential upside ▪ 2013 2014 2015 2016 2017 2018 2019 2020 2025 Assuming no dramatic macro or currency changes 2020 guidance Revenue NOK 3 300 to 3 700 million EBIT margin 6.4 to 7.0% 19 19
EBIT growth continues, margin expected to modestly increase, then stabilize 2020 2025 ▪ ▪ Operational improvement continued Target 7% but with an upside ambition ▪ ▪ 2019 affected by Poland startup and ramp-ups Acquired businesses or start-ups may of new customers temporarily be below margin ambition ▪ Gradually normalised operations in 2020 EBIT margin EBIT 7,0 % 6,1 % 202 1,5 % 25 2013 2014 2015 2016 2017 2018 2019 2020 2025 2013 2014 2015 2016 2017 2018 2019 2020 2025 Organic 2020 target * Excluding one-offs. 20 20
Capital efficiency: Temporary setback, ambitions maintained Net working capital Cash conversion cycle 32% 102 100 29% 20% NOK million 942 50 522 2013 2014 2015 2016 2017 2018 2019 2020 2025 2013 2014 2015 2016 2017 2018 2019 2020 2025 Net working capital NWC as % of revenue ▪ ▪ Target NWC 20% of revenue Cash conversion cycle key metric, target 50 days ▪ ▪ Temporary balance sheet expansion to handle Temporary balance sheet expansion to handle component shortages component shortages Cash Conversion Cycle (CCC) = Days inventory outstanding + days sales outstanding - days payable outstanding. CCC is calculated as a 3 months rolling average 21 21
Improving return on capital ▪ Higher EBIT, temporary balance sheet Return on operating capital expansion 25% ▪ Improvement expected to continue: ▪ Higher profit ▪ Capital efficiency 15% ▪ IFRS 16 affects ROOC negatively in 2019 with approximately 1.5 %-points 5% ▪ Long-term target 25% 2013 2014 2015 2016 2017 2018 2019 2020 2025 • Return On Operating Capital (ROOC) = EBIT / (Intangible and tangible fixed assets + Inventory + Trade receivables – Trade payables) • ROOC is calculated based on 3 months rolling average 22 22
Cash flow rebounding, normal capex stable as percentage of revenue ▪ Operating cash flow Strong underlying operating cash flow trend ▪ Temporary increase of inventory to handle component shortages starting in 2018 and 195 continued into 2019 ▪ Normal capex expected to be approximately 2-3% of revenue 2013 2014 2015 2016 2017 2018 2019 2020 Normal 29 67 76 66 82 70 59 60 Capex Poland 51 (MNOK) US acquisition 138 23
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